Open the account you'll invest in.
The story so far You've picked what you want: an S&P 500 index fund with a 0.03% fee. You open your bank app to buy it and hit a wall. There's no button for it. Your checking account can pay bills and hold cash, but it can't buy a single share. For that you need a different kind of account, and choosing it well saves you fees and headaches for years.
A brokerage account is an account that holds your investments, the way a bank account holds your cash.
It's the only way to buy stocks, ETFs and most funds. A checking account can't do it.
You apply online in about 15 minutes, link your bank account, and move money in.
Brokers like Fidelity, Charles Schwab, Vanguard and Robinhood run the accounts. Licensed representatives there answer customers' questions and place trades.
What you're looking at: a sketch of a made-up brokerage app. Money moves in from your bank on the left, shows up as buying power, and the shield on the right stands for SIPC protection, which you'll meet in this lesson.
Where investments live.
Opening a brokerage account is a lot like opening a bank account. The differences are what it can hold, the questions it asks, and the fees and protections that come with it.
Brokers and brokerage accounts
A broker is a company that buys and sells investments for you and holds them in your brokerage account. Brokers used to charge a commission, a fee for every trade. Since 2019, the big brokers charge $0 commission to buy or sell U.S. stocks and ETFs online.
- Broker
- Fidelity, Charles Schwab, Vanguard and Robinhood are brokers. Any of them can hold your S&P 500 fund.
- Commission
- A $4.95 commission, which used to be normal, on a $10 trade would eat $4.95$10 ≈ 50% of your money. At $0, all $10 gets invested.
What they ask you, and why
Federal rules make every broker check who you are before you can invest, a process called know your customer. Your Social Security number also lets the broker send tax forms to you and the IRS. You must be 18 in most states to open your own account. Younger investors use a custodial account that a parent opens for them.
- Know your customer
- The app asks for your name, address, date of birth, Social Security number and whether you have a job. It never needs your bank password or your debit card PIN.
- Custodial account
- If you were 16, a parent would open the account and manage it. At 18 or 21, depending on the state, it becomes yours.
Cash account or margin account?
The app will ask you to choose. In a cash account, you can only invest money you actually put in. A margin account lets you borrow from the broker to buy more. Borrowing makes gains bigger, but it makes losses bigger too, and you pay interest on the loan. For a first account, pick cash.
- Cash account
- You put in $1,000 and invest $1,000. If it falls 30%, you have $700, a 30% loss.
- Margin account
- You put in $1,000 and borrow $1,000 to invest $2,000. If it falls 30%, it's worth $1,400, but you still owe $1,000, so you have $400, a 60% loss.
Linking your bank
To move money in, you link your checking account with two numbers printed at the bottom of a check and shown in your bank app. The routing number says which bank, and the account number says which account at that bank. A transfer usually takes 1 to 3 business days. The money then shows up as buying power, cash that's ready to invest.
What you're looking at: a made-up check with made-up numbers. Along the bottom, the 9-digit routing number comes first, then the account number, then the check number. Your bank app shows the same two numbers, usually under "account details."
- Routing number
- 123456789 means First Springfield Bank. Everyone at that bank shares it.
- Account number
- 00084417 is Alex's own checking account. The app shows it as "Checking ••4417."
- Buying power
- Alex moves $50 in on Friday. Business days skip weekends, so it arrives between Monday and Wednesday and shows as $50.00 of buying power.
The fees to watch
Every broker posts a fee schedule. Most fees won't touch you if you buy a cheap index fund and leave it alone, but a few can surprise you. Tap each fee to see when it hits.
Tap a fee to see when you'd pay it.
What protects your account
Bank accounts have FDIC insurance, which covers up to $250,000 if a bank fails. Brokerage accounts have SIPC instead. If a brokerage firm fails and your investments go missing, SIPC covers up to $500,000 per customer, including up to $250,000 in cash. It does not cover losses when prices fall. That risk is yours.
- FDIC
- Your $3,600 emergency fund in savings is covered if the bank fails.
- SIPC
- Your $10,000 fund falls to $8,000 in a crash: SIPC pays $0, because the broker didn't fail. If the broker failed and your shares went missing, SIPC would cover them.
Also turn on two-factor authentication, so logging in takes your password plus a code sent to your phone. Thieves who steal a password still can't get in.
Two minutes. Just listen.
Tap any line to jump to it.
Open your account.
This is a practice brokerage app. Go through sign-up one screen at a time, the way you would for real. Each screen has a best choice. Your score counts the screens you get right on the first try.
What you're looking at: a practice sign-up in a made-up broker's app. The screens follow what real brokers ask, in a similar order. The numbers and names are invented, so don't type any real personal information here, and nothing you enter is saved or sent.
The logic, step by step.
Three small calculations show why a $0 commission, a cash account and SIPC each matter.
Step 1: A fee as a percent of your trade
Divide the fee by the amount you're investing.
- $4.95 on $10
- $4.95$10 = 0.495, about 50%. On a $1,000 trade, $4.95$1,000 ≈ 0.5%. Small investors got hit hardest, which is why $0 commissions matter so much.
Step 2: Your gain or loss on margin
Take what the investment is worth, subtract the loan and the money you put in, then divide by the money you put in.
- Down 30%
- $2,000 falls to $1,400. $1,400 − $1,000 − $1,000$1,000 = −$600$1,000 = −60%.
- Up 30%
- $2,000 grows to $2,600. $2,600 − $1,000 − $1,000$1,000 = $600$1,000 = +60%, before interest. Borrowing doubled both directions.
Step 3: How much SIPC covers
If a broker fails, SIPC covers what's missing, up to $500,000 in total, and no more than $250,000 of it in cash.
- $12,000 missing
- $11,950 in fund shares and $50 in cash: all $12,000 is covered, since both parts are under the limits.
Worked example: your first week
- Monday. Apply at a broker with $0 commissions. Choose an individual cash account and give the know-your-customer details.
- Monday. Link checking with its routing number and account number, and start a $50 transfer.
- Wednesday. The transfer lands: $50.00 of buying power. Turn on two-factor authentication.
- Next lesson. Use that $50 to place your first order.
A hermit crab inspects before it moves in.
A hermit crab carries its home on its back, and it has to move into a bigger shell as it grows. Before switching, it checks the new shell: it probes the opening with its legs and claws and looks inside for damage. A crab caught between shells is exposed, so moving carelessly is dangerous.
What you're looking at: an illustration, not data. The crab on the left is still in its old shell and reaches into an empty shell on the right to check it before moving in.
Why this sticks. Your brokerage account is the shell your investments live in. Check it before you move in: $0 commissions, no account fee, SIPC membership, two-factor login. Moving later is possible, but it can cost you, like Robinhood's $100 fee to transfer your investments out.
The page you'd copy down.
- Brokerage account: holds your investments. Broker: the company that buys and sells for you (Fidelity, Schwab, Vanguard, Robinhood). Commission: a per-trade fee, now $0 for U.S. stocks and ETFs at big brokers.
- Know your customer: brokers must verify your name, address, birth date and SSN. Never share your bank password or PIN. Under 18: a custodial account.
- Cash account: invest only what you put in. Margin account: borrow to invest; gains and losses both grow, plus interest.
- Routing number: 9 digits, which bank. Account number: which account. Transfers take 1 to 3 business days and become buying power.
- Fees to watch: commissions, account fees, transfer-out fees, fund expense ratios, mutual fund transaction fees, margin interest.
- FDIC: bank failure, up to $250,000. SIPC: broker failure, up to $500,000 (cash up to $250,000), never market losses.
Fill in the blanks
Grab a friend or a study group.
Fee schedule race
Each person pulls up a real broker's fee schedule. In five minutes, find its commission for ETFs, its account fee and its transfer-out fee. Compare what you found.
Scam or legit?
One person describes an investing app, real or made up: what it promises, what it asks for. Everyone else decides if it's legit, using SIPC, fees and what a real broker would never ask for.
Margin math
Pick a starting amount and a loan. Take turns calling out market moves, like down 20% or up 15%, and race to work out the gain or loss on your own money.
Just you and your money.
These stay on this device. Nobody else sees them.
Exam-style questions.
Written the way a college exam would ask them. Each right answer on the first try is worth 10 xp.
On the job: you're the licensed representative
You answer phones at a brokerage. A customer calls, upset. He put $2,000 into an S&P 500 fund, and after a bad month it's worth $1,700. He asks two things: can SIPC pay him back, and should he switch to a margin account and borrow $2,000 to "win it back faster"?
Your task: answer both questions. For the second, say he borrows $2,000, so he has $3,700 invested. Show what would happen to his own money if the market fell another 15%.
See a model answer
SIPC: no. SIPC only steps in if the brokerage firm fails and his investments go missing. It never covers losses from prices falling.
Margin: with $1,700 of his own money plus a $2,000 loan, he'd have $3,700 invested. A 15% drop takes $3,700 to $3,700 × 0.85 = $3,145. He still owes $2,000, so his own money would be $1,145: $1,145 − $1,700$1,700 ≈ −33%, more than double the 15% drop, plus interest on the loan.
What to tell him: drops like this are normal, his fund still owns the same 500 companies, and borrowing would turn a bad month into a much worse one. If he doesn't need the money for years, staying put in the cash account is the safer move.
From an empty account to your first share.
What you're looking at: a map of where this lesson fits in the course. Read it left to right: the lessons that come before, this lesson in the middle, and the later lessons that build on it.
- Before · Unit 5Index funds
- Before · Unit 1Checking and savings
- You are hereBrokerage account
- Next · Unit 5Buy your first $10
- Later · Unit 5401(k) and Roth IRA
- Later · Unit 6Spot scams